Monthly Archives: December 2015

Zoning as a negotiation—and the single family loophole

tl;dr

In Chicago, aldermen often set zoning to be more restrictive than the kind of development they eventually plan to approve, so as to maximize their negotiating power.

But there’s a loophole: all residential zoning, no matter how strict, allows single-family homes.

So developers looking to avoid negotiation can just build (very expensive) single-family homes.

The downzoning-as-negotiating-tactic ends up leading to more single-family homes than aldermen (or local residents) actually wanted.

That’s a problem on a number of fronts: affordability; public resources; transit; climate change; and so on.

If we’re going to move towards a system in which every development has to be negotiated, then that rule should apply to single-family homes as well as apartments and condos.

In the most naive version of the story, zoning is a quasi-objective, quasi-scientific endeavor. Planners, in consultation somehow with the public or their representatives, assign every plot of land in the city a code that denotes the kind of uses, and intensity of uses, that are appropriate to undertake there. They determine “appropriate” according to some sort of rational set of criteria: putting denser uses closer to major transportation corridors and nodes of activity; keeping “incompatible” uses, like factories and homes, apart; and generally respecting the existing built environment.

Of course, at least in Chicago, you don’t have to poke the zoning apparatus very hard before this story falls apart. With the exception of the immediate area around downtown, Chicago does not allow more density in many of the places that planning textbooks would tell you it should go: near transit stations, for example. (Yes, we have a “transit-oriented development” law, but it’s mostly about parking requirements. It only gives a modest density bonus to parcels that are already zoned relatively densely.)

The Brown Line runs up the right side of this map, and then west just south of Lawrence; you can see stops labeled "Irving Park - Brown," "Montrose - Brown," and so on. You can also see that none of these stops have any kind of high-density zoning—in fact, most of the surrounding land is zoned single family only. (Click through to get to an interactive map.)
Can you tell where the Brown Line ‘L’ runs, carrying over 100,000 people a day? If you guessed any of the yellow corridors, indicating slightly higher allowed density, you’re wrong. None of the stops—which you can (barely) see, labeled “Irving Park – Brown,” “Montrose – Brown,” and so on—have any kind of higher-zoned halo, and most of their surrounding land is zoned single-family only. (Click through to get to an interactive map.)

And while Chicago’s zoning code mostly keeps factories and residential homes apart—though not always, as the above map shows; that vertical corridor of uncolored land is a manufacturing district in the middle of a residential neighborhood—beyond that, it often fails miserably at even pretending to be keeping incompatible uses apart. Remember, theoretically, each zoning category is different enough that it ought to be “incompatible” with every other category; otherwise, the authors of the code would have just combined them. That’s not to say they can’t be relatively close—say, commercial with apartments above on a main street, and residential-only on the side streets nearby—but it would be ridiculous to have a bunch of different zoning categories hopscotched around the same blocks.

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Except Chicago does that all the time. Above, you have a checkerboard of single-family-only districts (red), small apartments (yellow), larger apartments (green), and even a smattering of very dense apartments (purple). And while the densest category is only found near the corner of Chicago and Ashland, two major streets, the other three categories are liberally sprinkled around the very same blocks on the very same side streets. In many cases, “zones” make up just one or two buildings, surrounded on all sides by other, supposedly incompatible, zones!

There is a word for this: “spot zoning.” It is generally illegal.

But whatever. Maybe the issue is an overzealous application of the “existing built environment” criterion. After all, Chicago’s side streets were usually built as a haphazard mix of single-family homes, small apartment buildings, and larger apartment buildings. If we just zoned each parcel to the category closest to its current building, then you might end up with something very much like the above map.

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Except that’s not how we do it, either. The block above happens, at least, to be consistent in its zoning: it’s all single-family only. But literally none of the existing buildings—which, by the look of them, have been around for well over a century—are single-family homes.

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Nor is that at all unusual. Every building in the above scenes is also zoned to be single-family only—anything else would be, according to law, “incompatible”—despite the fact that none of them depict any actual existing single-family homes.

So what’s going on?

Well, an alternative theory would be that instead of zoning being the result of a professionalized, semi-scientific process of analysis, it’s instead the result of politics. In particular, local politics, since in Chicago zoning changes controlled virtually entirely by the ruling alderman.

And who controls the local political process? Well, over at City Observatory, I covered the debate between two theories. One, the “growth machine,” basically posits that local politics are dominated by business and development interests, which manipulate zoning to overbuild, relative to what an “objective” observer might think appropriate. On the other side, there’s the “homevoter hypothesis,” which suggests that local politics are dominated by homeowners, who are mostly interested in maintaining the value of their homes. As a result, they’ll make zoning that leads to underbuilding, so as to reduce the number of “competing” sellers and avoid other neighborhood changes that might risk reducing property values.

If these are the options, which wins? Well, the study I wrote about at City Observatory, which was based on zoning changes in the 2000s in New York City, found that in places where you might expect it would be most valuable to build—areas near high-performing schools; whiter neighborhoods; neighborhoods seeing high home price appreciation and population growth—there were many more zoning changes to allow less density than to allow more density. That’s really hard to square with a growth machine story, but fits in perfectly well with a homevoter hypothesis story.

And what about Chicago? Before even looking at the city at all, you would probably expect that Chicago would be closer to the homevoter hypothesis than New York—simply because there are way more homeowners here (the homeownership rate is about 45%, rather than 35%).

But beyond that, and without doing a whole study, I can make an observation that makes me lean towards the homevoter hypothesis here, too: while there are abundant examples of neighborhoods where current zoning allows less density than the prevailing built environment—that is, for example, it’s illegal to build a three-flat on a street full of three-flats—there appear to be vanishingly few parts of the city where zoning allows more density than the prevailing built environment. Since intensifying land use is basically the guiding philosophy of the growth machine, a situation in which very little land is allowed to have its use intensified as of right seems hard to square with that sort of regime.

(There are two exceptions. First, areas with lots of vacant land often have zoning that allows reasonably dense buildings as of right, which you could reasonably claim would be “intensifying.” But for one, there’s generally very little building going on in these areas, and I suspect the arrival of construction would result in a flurry of rezonings; and two, if the goal of the “homevoters” is to increase their property values, getting rid of vacant lots makes a lot of sense. The other place where lots of intensifying is allowed is downtown. I think there’s a longer story to tell here, but I also would probably concede that much of downtown is, in fact, ruled by the growth machine.)

But there’s another thing. Which is this:

Politics are not only about constituents. They’re also about actual officeholders. And if you’re an officeholder, regardless of what your constituents want, you probably want maximum flexibility, and maximum leverage, in any given situation. In Chicago’s “planning” environment—that is, where all zoning changes are controlled solely by the local alderman, and where zoning changes can be made by that alderman very easily—that means there’s a massive incentive to downzone so that every potential developer will have to negotiate with the alderman. In the best possible interpretation, aldermen do this to allow public meetings where neighbors have the opportunity weigh in on exactly what they’d like to see built on every single parcel as developer interest arises, and then act on those wishes. In a less generous interpretation, aldermen do this to allow public meetings as a show of democracy, placating local voters while expecting things to end up basically as they would have anyway. In the least generous interpretation, you might note that this creates an incentive for developers to, say, give campaign donations to any aldermen whose wards include land they’d like to build on, since they’ll need aldermanic approval for every single project.

But even if we stick to the most generous interpretation, there are a few problems.

First, by moving planning from a theoretical planning department in City Hall to the local alderman’s office, they have shrunk the pool of voters who are consulted about changes from (theoretically) the entire city, with perhaps an extra weight given to people nearby, to only the people who show up to a given community development meeting. Without going into a whole spiel about the issue of hyper-local planning, I’ll just say that excluding many of the people who are affected by decisions about housing from having a voice in those decisions is a recipe for problems. (If this doesn’t make sense in the context of, say, Logan Square, imagine who doesn’t get a voice in hyper-local community meetings in, say, Lincoln Park.)

Second, while it’s not necessarily bad to allow negotiations over land use—you get a bit of extra density in exchange for another design concession, or less height, or more greenery, or whatever—it might be better to have these negotiations at the level of a neighborhood plan, rather than parcel by parcel. That’s both because of the “who’s enfranchised” issue above, and because negotiations require a lot of everyone’s time and effort. The smaller the payoff, the less inclined people will be to expend that time and effort. Meaning, in this context, that you might just shut out smaller developments—three flats, say—altogether, with developers deciding it’s only worth going through a whole community process if they’re proposing much larger buildings.

Finally, there’s a huge loophole: single-family homes. While in the story above, Alderman Burnett is downzoning to disallow all residential (even though, as he says, he only expects residential proposals, of which he will eventually grant one), much of the time, the alderman downzones to RS-3, which only allows single-family homes. In fact, there is no residential category that does not allow single-family homes as of right. Which means that big expenditure of time and effort can be avoided, if you’re a developer, by building single-family homes rather than apartments or condos.

If you’re inclined to be against density for the sake of being against density, then maybe that’s a feature, not a bug. But if you’re concerned about anything else, it’s a huge problem. Affordability? Basically all new single-family homes are going for the better part of a million dollars, and significantly more than units in a multifamily building in the same location. Plus, single-family homes won’t trigger the city’s Affordable Requirements Ordinance, so there won’t be any below-market units, either.

Transit? Allowing only single-family homes in central urban areas reduces the kind of density that supports bus and rail lines, leading to a vicious cycle of declining ridership and service.

Public services? Single-family homes will generally create less total property value than multifamily buildings, with smaller property tax bills to support vital city services.

Climate change? Less population density means more carbon emissions per capita.

Little islands of low per-capita emissions in dense urban centers. Credit: CoolClimate Network, UC-Berkeley
Little islands of low per-capita emissions in dense urban centers. Credit: CoolClimate Network, UC-Berkeley

Local businesses? Single-family homes mean fewer people within walking distance of local business districts. That sort of population decline may be a big part of why there are empty storefronts in some of Chicago’s most affluent neighborhoods.

Now! None of this is to say that I think we should outlaw single-family homes. I don’t.

But it does seem to me that these are, together, a good enough reason to believe that the single-family loophole is a problem. Remember, the issue is not that we’re zoning land for single-family homes because we think that’s the only “compatible” use, but because it gives us maximum negotiating leverage over the appropriate multifamily building we eventually want to approve. And yet, in the process, we’re giving developers a huge incentive to build less densely than we think is appropriate, which exacerbates all the issues above.

So basically what I’m saying is that if we’re going to move towards a system where every development is negotiated—where, in planning lingo, basically everything is a mini-planned development—then we should require negotiation for single-family homes as well.

Homevoters v. the growth machine

At City Observatory:

There are two big theories about who controls the pace of development in American cities and suburbs.

One is the “growth machine.” In this telling, developed by academics like Harvey Molotch in the 1970s, urban elected officials and zoning boards are highly influenced by coalitions of business and civic leaders interested mainly in economic growth and maximizing the price of the land they own.

The growth machine view. Credit: Matthew Rutledge, Flickr
The growth machine view. Credit: Matthew Rutledge, Flickr

 

The other, developed later by the economist William Fischel, is the “homevoter hypothesis.” Fischel argues that real power—at least in the small to moderately-sized municipalities in which the majority of Americans live—is held by homeowners, who are also interested primarily in maximizing the value of their property: their homes.

The homevoter view. Credit: Richard Masoner, Flickr

 

These two theories closely track two of the major camps in the debate about what’s wrong with American housing policy. If you believe in the growth machine, either because you’re a reader of Molotch or it just happens to coincide with your general worldview, you’ll probably believe that US cities suffer from too much development, pushed on an unwilling populace by a profit-driven elite for whom zoning and planning is an inconvenience at most.

If you’re in the homevoter camp, conversely, you’re likely to think that the problem is too little development, as NIMBY homeowners scare local elected officials into blocking any housing development that might compromise their property values—either simply by increasing the housing stock, and thus the number of “competing” sellers, or by introducing “undesirable” kinds of people or buildings.

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  • Interestingly, proximity to high-quality infrastructure and services made land more likely to be changed in both directions—that is, land far from high-quality infrastructure and services was more likely to remain in its original zoning category. But in almost every case, proximity was especially likely to lead tomore downzones. For example, parcels in high-performing school districts were 43 percent more likely than the typical parcel to be upzoned—but 392 percent more likely to be downzoned.
  • Correlations with market growth were weaker—but they suggested that growing markets were associated with downzoning. Parcels in neighborhoods seeing rapid population growth were 41 percent more likely to be downzoned, for example. Parcels in neighborhoods seeing rapid home value increases were about 20 percent less likely to be upzoned, although they were also 27 percent less likely to be downzoned.
  • Downzoning was very strongly correlated with whiter neighborhoods: parcels in Census tracts that were over 80 percent white were more than seven times more likely to be downzoned than parcels in tracts that were less than 20 percent white.
  • Parcels in tracts with high homeownership rates were 43 percent more likely to be downzoned, and 25 percent less likely to be upzoned. Parcels in districts with high voter turnout were 230 percent more likely to be downzoned, and 53 percent less likely to be upzoned.

A $1.6 billion proposal

At City Observatory:

Second, this case highlights the fact that rising home prices create massive capital gains—not just for landlords and developers, but regular homeowners as well. In some cases, this is a actually a big win for equity, particularly when property values increase rapidly in neighborhoods where homeowners are predominantly lower income or people of color. That might represent a small blow against the racial wealth gap. (Although it is likely to be quite a small blow indeed, given research showing that black first-time homeowners actually lost wealth on net in housing over the course of the entire decade of the 2000s. Neighborhoods that see large increases in property wealth are actually disproportionately likely to be white.)

But from a policy perspective, these capital gains represent a huge opportunity. In this particular case, the homeowner was able to earn a nearly 700 percent return on her investment and still leverage half a million dollars to determine the occupancy of her home after she left. But even if we could count on other private residents to use that power as “ethical landlords,” it would leave the housing market open to private discrimination, as we already argued. Moreover, as Kriston Capps pointed out, there’s no guarantee of long-term, let alone permanent, affordability: the next owner is under no obligation to be similarly “ethical.” And finally, very few landlords, no matter how “ethical,” are likely to give up enough profit to provide deep subsidies: even in this case, the film teacher ended up selling for $650,000, which stretches the definition of “affordable” even in San Francisco.

What if, instead, we could harness a small percentage of these private capital gains for publicly-funded, truly affordable housing? After all, we already leverage the profits of developers for affordable housing in the form of inclusionary zoning requirements. But those programs almost never create very many affordable units, simply because preserving five, ten, or even 20 percent of newly constructed units for low-income people doesn’t add up to much when all newly built homes make up a tiny proportion of the community as a whole. In the five years from 2010 to 2014, San Francisco’s inclusionary zoning program produced, on average, 140 units of affordable housing a year—not nothing, but also hardly enough to make a real dent in the issue.

But a small tax on the capital gains of homeowners whose property values grew the most could produce funds to build or preserve a meaningful number of affordable units. To be more progressive and protect wealth for working- and middle-class homeowners, the tax could be structured so that it only fell on those who earned significantly more than “normal” returns, or whose homes were extremely valuable to begin with. It could also be collected only when a home is sold, to avoid adding to the burden of people with valuable homes but only moderate incomes. (As an added benefit, such a tax could have the effect of deterring other exclusionary behavior by homeowners, if William Fischel’s ideas are correct.)

The money collected could be used, not to sell a $650,000 home to whoever had the best organic produce, but to create permanent (or at least long-term) affordable housing to whoever needed it at prices actually targeted to the low income. How much money are we talking? Well, in 2013, the total value of homes in the San Francisco metropolitan area grew by $159 billion. A regional tax that captured just one percent of that value would generate nearly $1.6 billion a year. San Francisco’s Proposition A, by contrast, passed this November, creates a one-time bond issue of $310 million; and the in-lieu fees raised by SF’s Inclusionary Housing ordinance in 2014 were $30 million. Of course, it’s not quite fair to contrast a regional measure with a municipal one—but the point is that $1.6 billion a year is a lot of money, equivalent to thousands of new affordable units a year. And it’s money that Bay Area governments are currently leaving on the table.

Harnessing these capital gains in places where real estate values are rapidly appreciating to create a stream of truly affordable housing funds is an ethical housing policy. Asking current homeowners and landlords to discriminate based on their own private biases is not.